House Passes Bill on Guarantees

On 17 December 2015, the House of Representatives (House) passed the Bill on Guarantees (“Bill”). This Bill aims to provide a legal framework for guarantee business model that bridges the micro, small, medium enterprises and cooperatives (UMKMK) in obtaining loans from banks, despite of their non-bankable characteristic. [1] The Bill regulates broad topics on guarantee, as incorporated under 65 Articles. In that regard, this Indonesian Legal Brief (ILB) limits its discussion to the following aspects: (i) business scope; (ii) establishment; (iii) licensing procedures; and (iv) mechanism. [2] The Bill is in relevance to UMKMK as debtors, financial and non-financial institutions as creditors, as well as commercial (conventional) and sharia-based guarantee and re-guarantee institutions.Business ScopePursuant to the Bill, guarantee is an activity where a guarantor guarantees the settlement of debtor’s financial obligation to creditors. [3] There are two forms of guarantor: guarantee institution or re-guarantee institutions. These institutions may operate conventionally or under sharia principles, provided that conventional institutions may organize some of their businesses using sharia principles by establishing a sharia business unit. ^[4] A guarantee institution conducts the following activities: ^[5]